Home / World News / How the interest rate rise will affect your mortgage repayments

How the interest rate rise will affect your mortgage repayments

The Reserve Bank’s second rate hike in as many months is expected to add about $133 a month to the cost of the average Aussie mortgage.

The central bank lifted the cash rate target by .50 percentage points at its monthly meeting on Tuesday, taking the cash rate to 0.85 per cent.

If banks pass on the hike in full, the average borrower with a $500,000 mortgage and 25 years left to pay on their loan can expect their monthly repayments to rise by $133, according to RateCity.

If last month’s rate rise was also factored in, the repayment increases would add $197 in total.

The Reserve Bank lifted the cash rate target by .50 percentage points, to 0.85 per cent.
Camera IconThe Reserve Bank lifted the cash rate target by .50 percentage points, to 0.85 per cent. Credit: News Corp Australia

Tuesday’s rate rise came after the RBA hiked the cash rate from a record-low 0.1 per cent to 0.35 per cent in May, in what was the first rise since 2010.

Under RateCity’s calculations, the June rise would add $80 to monthly repayments of a $300,000 loan, $106 for a $400,000 loan and $159 for a $600,000 loan.

For a $750,000 loan, it would add $199 to repayments and for a $1 million loan, $265.

The figures are based on an owner-occupier paying principal and interest with 25 years remaining.

In his statement, Reserve Bank Governor Philip Lowe said the rate increase would help cut inflation in Australia, which had significantly increased and was higher than earlier expected.

Camera IconThe central bank noted house prices had already fallen in some markets. NCA NewsWire / John Gass Credit: News Corp Australia

Global factors, including Covid-related disruptions to supply chains and the war in Ukraine, accounted for much of the rise in inflation.

Local factors, including a tight labour market, also added to upward pressure on prices, and this year’s floods also caused some costs to go up.

In the near future, inflation would also likely be higher than was expected a month ago due to higher gas and electricity prices and hikes in fuel costs, Mr Lowe said.

“Today’s increase in interest rates will assist with the return of inflation to target over time,” Mr Lowe said.

“Housing prices have declined in some markets over recent months, but remain more than 25 per cent higher than prior to the pandemic, supporting household wealth and spending.”

Camera IconGovernor Philip Lowe said the hike would help get inflation to target. NCA NewsWire / Jeremy Piper Credit: News Corp Australia

Mr Lowe hinted further hikes were likely in the months ahead, with the size and timing of further rises guided by the outlook for inflation and the jobs market.

RateCity.com.au research director Sally Tindall described the June rise in repayments as “relatively moderate” but warned homeowners to prepare for sizeable hikes in coming months.

“These rate hikes aren’t going to magically cure Australia’s inflation woes,” Ms Tindall said. “The RBA will need to hike again, potentially as early as next month and from there they could continue to come thick and fast to get inflation under control,” she said.

“Governor Lowe has indicated the neutral cash rate could be around 2.5 per cent. If we get there by Christmas next year, the average borrower with a $500,000 debt could see their repayments rise by $652.

“That’s like blowing two car tyres every single month and having to replace them.”

Homeowners have been urged to do their homework and refinance if needed.
Camera IconHomeowners have been urged to do their homework and refinance if needed. Credit: News Corp Australia

Ms Tindall said some families would struggle to meet higher repayments over the next two years.

“It’s not going to be pretty, particularly against the backdrop of soaring prices for everyday essentials such as food, petrol and energy,” she said.

She advised homeowners to work out the shape of their mortgage by Christmas next year and to take action now, if they believed they could not meet those repayments.

“Just because rates are on the rise, doesn’t mean it’s a bad time to refinance. If you live in the home you own with a steady job and a good track record of paying down your debt, you should still be in the driver’s seat when it comes to rates, if you’re prepared to refinance or at least haggle with your current lender,” she said.

In April 2022, average loan sizes for owner-occupier dwellings (including construction and the purchase of new and existing dwellings) rose 1.9 per cent nationally to $611,000, according to the Australian Bureau of Statistics.

Rate Rise Calculator

About brandsauthority

Check Also

Brodie signs on to stay in England until 2030

Brodie Croft has agreed a huge eight-year deal with British Super League club Salford ending …

%d bloggers like this: